Fanatics: A $1 Billion Business In China

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Friends,

Fanatics, the leading sports merchandise company led by Philadelphia 76ers partner Michael Rubin, is launching Fanatics China, a 50-50 joint venture with private equity firm Hillhouse Capital to expand its presence in China.

Fanatics China will be based in Shanghai, build-out eCommerce sites for professional leagues and teams, and eventually own and operate hundreds of retail locations throughout the country.

Financial details of the partnership were not made public, but CNBC says Fanatics expects the “venture alone to be over a $1 billion piece of business in China.”

How so?

Let's run through it.

First, let’s start with a wild stat:

North America, which includes 23 countries in total from the US and Canada to Belize and the Bahamas, has a total population of fewer than 600 million people.

The interesting part?

China, which represents one single country rather than a collection of 23, has a population of 1.4 billion people, including +/- 600 million sports fans alone.

Furthermore, after spending decades as the largest retail economy globally, the United States was overtaken by China in 2020 ($4.89 trillion vs. $5.07 trillion). As the economy opens back up, the U.S. will probably retake the lead in 2021, but let’s be honest, the shift is inevitable. Based on current growth rates, China will be the world's largest retail economy for the next few decades.

My point is simple: As the official sports merchandise manufacturer for every major US professional sports league, Fanatics' opportunity in China is massive.

Partnering with an established private equity firm like Hillhouse Capital, whose portfolio includes two of China’s most prominent retail companies — Tencent and JD.com — gives Fanatics an advantage. Topsports, another Hillhouse Capital portfolio company, currently operates more than 20,000 Nike and Adidas stores in China. That helps also.

As for what’s next, it has to be an IPO.

Michael Rubin and Fanatics have raised about $1.5 billion in funding since 2011, including a significantly oversubscribed $350 million Series E funding round in August, which valued the company at $6.2 billion.

The funding is great, but more importantly, Rubin has executed.

Fanatics has secured exclusive merchandise contracts with every major US professional sports league. They’ve acquired companies like Top of the World and WinCraft, which added thousands of exclusive licensing agreements to their portfolio.

The most important part?

They’ve made their partners a ton of money, further aligning incentives, and building a bond that won’t be broken.

Here’s what I mean…

The NFL and MLB invested a total of ~$150 million in Fanatics a few years ago through their respective venture capital funds. That investment is now worth more than $250 million. Even better, it’s growing by the day. Again, incentives have been aligned, and those exclusive agreements arent going anywhere.

When it comes to the timing of an IPO, your guess is as good as mine. But one thing is certain, there will be plenty of interest.

I hope everyone has a great week, and we’ll talk on Monday.

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